DBRS Morningstar Finalizes Provisional Ratings on Chesapeake Funding II LLC, Series 2020-1

DBRS, Inc. (DBRS Morningstar) finalized its provisional ratings on the following classes of notes issued by Chesapeake Funding II LLC, Series 2020-1 (the Transaction):

-- $593,560,000 Series 2020-1, Class A-1 Notes rated AAA (sf)
-- $100,000,000 Series 2020-1, Class A-2 Notes rated AAA (sf)
-- $21,420,000 Series 2020-1, Class B Notes rated AA (sf)
-- $17,510,000 Series 2020-1, Class C Notes rated A (sf)
-- $17,510,000 Series 2020-1, Class D Notes rated BBB (sf)

The ratings are based on DBRS Morningstar’s review of the following analytical considerations:

(1) The analysis incorporated the impact of the Coronavirus Disease (COVID-19) as follows:
-- The Transaction’s analytical inputs consider DBRS Morningstar’s set of macroeconomic scenarios for select economies related to the coronavirus, available in its commentary “Global Macroeconomic Scenarios: July Update,” published on July 22, 2020. DBRS Morningstar initially published macroeconomic scenarios on April 16, 2020, which were last updated on July 22, 2020, and are reflected in DBRS Morningstar’s rating analysis.

-- The assumptions consider the moderate macroeconomic scenario outlined in the commentary (the moderate scenario serving as the primary anchor for current ratings). The moderate scenario assumes some success in containment of the coronavirus within Q2 2020 and a gradual relaxation of restrictions, enabling most economies to begin a gradual economic recovery in Q3 2020.

-- While the ongoing coronavirus disease outbreak has had an adverse effect on the U.S. corporate borrower in general, performance of the underlying receivables in this Transaction is expected to remain resilient. A diverse group of corporate obligors are making lease payments as well as covering shortfalls in book value at lease end. Further, as auto fleets are typically essential to a company's operations, leases are likely to be affirmed in case of insolvency. Finally, credit enhancement present in the Transaction provides significant coverage of historically minimal losses experienced in auto fleet lease portfolios.

(2) Transaction capital structure, proposed ratings, and form and sufficiency of available credit enhancement.
-- Credit enhancement levels are sufficient to support DBRS Morningstar’s loss assumptions under various stress scenarios.
-- The yield supplement account is established to supplement the yield from any lease that does not meet a minimum yield requirement.

(3) The ability of the Transaction to withstand stressed cash flow assumptions and repay investors according to the terms under which they have invested. The ratings address the timely payment of interest on a monthly basis and principal by the legal final maturity date.

(4) Element Fleet Corporation’s (EFC) capabilities with regard to originations, underwriting, and servicing.

(5) DBRS Morningstar has performed an operational review of EFC and considers the company to be an acceptable originator and servicer.

(6) The high credit quality and historical performance of the collateral.

(7) The leased vehicles are essential-use vehicles for customers; therefore, such leases are likely to be affirmed by an obligor in a bankruptcy proceeding.

(8) These leases are hell or high water and triple net with
-- No set-off language and
-- Lessee responsibility for all taxes/expenses.

(9) The legal structure and presence of legal opinions that address the true sale of the assets, the nonconsolidation of the Issuer with EFC, the Issuer’s valid first-priority security interest in the assets, and consistency with the DBRS Morningstar “Legal Criteria for U.S. Structured Finance” methodology.

The Transaction’s collateral consists of the following:

-- Vehicles titled in the name of the titling trusts: Gelco Fleet Trust (GFT) and D.L. Peterson Trust (DLPT).
-- The related open-end and closed-end fleet leases.
-- Loans primarily to regional rental car companies secured by vehicles.
-- Vehicles in the process of being leased that are acquired by GFT and DLPT at the request of lessees.

CREDIT ENHANCEMENT
-- The Class A-1 and Class A-2 Notes’ credit enhancement is 12.463% and consists of subordination (7.524%), overcollateralization (OC; 3.900%), and an initial cash reserve (1.039%).
-- The Class B Notes’ credit enhancement is 9.607% and consists of subordination (4.668%), OC (3.900%), and an initial cash reserve (1.039%).
-- The Class C Notes’ credit enhancement is 7.273% and consists of subordination (2.334%), OC (3.900%), and an initial cash reserve (1.039%).
-- The Class D Notes’ credit enhancement is 4.939% and consists of OC (3.900%) and an initial cash reserve (1.039%).

The Transaction documents include provisions regarding the transition to a new benchmark replacement rate in the event that Libor is discontinued. DBRS Morningstar determined that contemplation of the Secured Overnight Financing Rate (including related adjustments) as a benchmark replacement rate is not a material deviation from the framework provided under DBRS Morningstar’s “Interest Rate Stresses for U.S. Structured Finance Transactions” and related methodologies. Please refer to the rating report for further detail.

The cash reserve amortizes to a floor equal to 33% of the initial amount. The OC has a floor of 1.300% of the initial collateral. All credit enhancement figures are percentages of the required asset amount.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework and its methodologies can be found at: https://www.dbrsmorningstar.com/research/357792.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodologies are Rating U.S. Auto Fleet Lease Securitizations (September 27, 2018) and Rating U.S. Auto Lease Securitizations (November 5, 2019), which can be found on dbrsmorningstar.com under Methodologies & Criteria.

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

For more information regarding structured finance rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/358308.

For more information regarding the structured finance rating approach and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/359905.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Please see the related appendix for additional information regarding the sensitivity of assumptions used in the rating process.

The full report providing additional analytical detail is available by clicking on the link under Related Documents below or by contacting us at info@dbrsmorningstar.com.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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